The pound strengthened further against the yen on Wednesday, trading in the mid‑215.00s during early European hours and hovering near levels last seen in July 2008. The move extended an eight‑day winning streak for GBP/JPY, driven by rising geopolitical tensions around the Strait of Hormuz and diverging interest rate expectations between the United Kingdom and Japan.
Strait of Hormuz tensions weigh on yen
Market data showed persistent concern over potential disruptions to energy shipments through the Strait of Hormuz after the United States tightened restrictions on Iranian ports and imposed a naval blockade on April 13.
Japan, which imports more than 90% of its energy and relies heavily on Middle Eastern oil, is seen as particularly exposed. A prolonged disruption to crude flows through the Persian Gulf is viewed as a direct threat to Japan’s economic stability and growth outlook, adding pressure on the yen.
Mineral fuels accounted for roughly 23–25% of Japan’s total imports in the first quarter of 2026. Analysts estimate that a sustained closure of the strait could shave as much as 3% off Japan’s Gross Domestic Product this year. Brent crude pushed above US$100 per barrel in March, marking one of the sharpest monthly price jumps in recent history.
Policy divergence supports pound, complicates yen outlook
The latest currency moves underline a widening policy and macroeconomic gap between the two economies.
In the UK, annual inflation held at 3% in February 2026, keeping price pressures well above the Bank of England’s target. With the policy rate at 3.75%, markets now broadly expect the central bank to tighten further, with some pricing in one or even two additional rate increases this year.
Expectations for rate cuts that were prevalent at the start of 2026 have been fully unwound. Futures markets currently assign about a 56% probability of a rate hike by the monetary policy committee at its 18 June meeting, providing solid underlying support for the pound.
Japan faces a different policy challenge. Higher import costs, particularly for energy, are feeding into domestic prices. Markets now see roughly a 60% chance that the Bank of Japan will raise interest rates at its 28 April meeting.
Speculation over a possible policy shift, together with ongoing fears of direct official intervention to stem yen weakness, has discouraged traders from building aggressive short positions against the currency. This caution has helped cap GBP/JPY’s upside, even as broader momentum remains in favour of the pound.
Daily currency snapshot: yen broadly softer
In daily trading, the yen slipped 0.02% against the dollar and 0.04% versus the pound, and lost 0.09% against the Canadian dollar. The Japanese currency held its firmest relative position against the euro, but overall softness was still evident across major pairs.
Technical signals flag overbought conditions
From a technical standpoint, GBP/JPY’s daily Relative Strength Index has moved close to overbought territory, hinting at the risk of a short‑term pause or consolidation after the recent sustained rally.
Market participants are now focused on upcoming guidance from Bank of England Governor Andrew Bailey, who is due to speak during a visit to the United States, as well as key UK data later this week that could influence the rate outlook.
Event risks: central banks and Middle East tensions in focus
The current backdrop reflects a sharp divergence in the drivers of monetary policy: domestically rooted inflation pressure in the UK contrasted with an external energy shock in Japan.
Any sudden easing of tensions in the Persian Gulf, or signs of restored tanker traffic through the Strait of Hormuz, could offer immediate relief to the yen and trigger a pullback in GBP/JPY. Conversely, further escalation would likely reinforce concerns over Japan’s growth and keep pressure on its currency.
Traders are watching two main catalysts in the coming weeks:
- Bank of Japan’s 28 April policy meeting, which could mark a shift towards tighter policy and introduce greater two‑way risk for the yen.
- Bank of England communication and UK data, which may confirm or challenge current market pricing for additional rate hikes.
Given the extended rise in GBP/JPY and elevated geopolitical risks, many market participants appear inclined toward a cautious stance in the near term, with attention firmly on central bank decisions and developments in the Middle East.
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